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Large investors, regulatory taking and investor-state dispute settlement

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  • Konrad, Kai A.

Abstract

This paper offers an economic analysis of an international investor-state dispute settlement regime (ISDS) in markets with large investors. It identifies a reason for strategic overinvestment by the domestic industry, leading to permissive regulation in the absence of ISDS. An “ideal” investor-state dispute settlement arrangement (efficiency- oriented, transaction-cost free, with untouchable, fully reliable, and unbiased judges) has positive and negative effects in this framework. It generates an equal level playing field for domestic and foreign investors, but it magnifies an existing overinvestment problem and may reduce world welfare. The results explain anecdotal evidence according to which ISDS that protects foreign investors is liked by the domestic industry and disliked by other interest groups in the host country.

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  • Konrad, Kai A., 2017. "Large investors, regulatory taking and investor-state dispute settlement," European Economic Review, Elsevier, vol. 98(C), pages 341-353.
    • Handle: RePEc:eee:eecrev:v:98:y:2017:i:c:p:341-353
    DOI: 10.1016/j.euroecorev.2017.07.002
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    Cited by:

    1. Richardson, Martin & Stähler, Frank, 2019. "International agreements, economic sovereignty and exit," European Economic Review, Elsevier, vol. 120(C).
    2. Guttorm Schjelderup & Frank Stähler, 2021. "Investor‐state dispute settlement and multinational firm behavior," Review of International Economics, Wiley Blackwell, vol. 29(4), pages 1013-1024, September.
    3. Kohler, Wilhelm & Stähler, Frank, 2019. "The economics of investor protection: ISDS versus national treatment," Journal of International Economics, Elsevier, vol. 121(C).
    4. Ralph Ossa & Robert W. Staiger & Alan O. Sykes, 2020. "Disputes in International Investment and Trade," NBER Working Papers 27012, National Bureau of Economic Research, Inc.
    5. Monika Sztajerowska, 2021. "International Investment Agreements, Double-Taxation Treaties and Multinational Activity: The (Heterogeneous) Effects of Binding," PSE Working Papers halshs-03265057, HAL.
    6. Ossa, Ralph & Staiger, Robert W. & Sykes, Alan O., 2023. "Standing in international investment and trade disputes," Journal of International Economics, Elsevier, vol. 145(C).
    7. Monika Sztajerowska, 2021. "International Investment Agreements, Double-Taxation Treaties and Multinational Activity: The (Heterogeneous) Effects of Binding," Working Papers halshs-03265057, HAL.
    8. Frank Stähler, 2023. "An optimal investor-state dispute settlement mechanism," Journal of Economics, Springer, vol. 138(1), pages 1-16, January.

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    More about this item

    Keywords

    Investment arbitration; Settlement courts; Time-consistent regulation; Strategic investment;
    All these keywords.

    JEL classification:

    • K11 - Law and Economics - - Basic Areas of Law - - - Property Law
    • F21 - International Economics - - International Factor Movements and International Business - - - International Investment; Long-Term Capital Movements
    • F55 - International Economics - - International Relations, National Security, and International Political Economy - - - International Institutional Arrangements

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